Although the data has been soft recently, the recovery in
manufacturing has far outpaced the recovery in services, making
manufacturing a bigger and more important part of the economy now
than before.

A team of BofA economists led by Ethan Harris say that a bigger
manufacturing sector now "leaves the economy particularly
vulnerable to an uncertainty shock."

In a note to clients, BofA writes that there are reasons to
expect manufacturing to slow down:

The uncertainty shock will likely prompt
corporations to postpone investment in capital and
software. The long string of false dawns has undercut
corporate confidence, making them more sensitive to uncertainty
shocks.

Consumers typically reduce spending on durable
goods in the face of a confidence shock. These are
big-ticket items which can be postponed and require financing.
For example, auto sales and housing.

The synchronized global slowdown, spurred by the crisis
in Europe, restrains demand for US exports.
The weakness has not been isolated to Europe; developing
economies have started to slow. The strengthening US dollar
further undercuts export growth.

The bottom line for the BofA economists: "The economy does not
have much cushion to absorb a shock to the goods sector – the
most productive side of the economy...the slowdown has just
begun, in our view."